Setting Up Your Books: An Overview of Inn Accounting and Bookkeeping
By Hugh A. Daniels, BS, MBA

While you are busy looking at properties, considering what decor you might want, what should the name be, should we incorporate, dreaming of that opening day, don't forget the less glamorous, but equally important plan of how you will handle your accounting, plus who will provide your bookkeeping services.  Accounting is the principals or practice of systematically recording, presenting and interpreting financial accounts, while Bookkeeping is the work of keeping a systematic record of business transactions.  Now if you purchase an existing inn, this may be moot.  However, their existing accounting program may not be the best and may need some sprucing up when you take over, so read on.

            Get in the habit of tracking your expenditures early.  As you prepare for your career in the innkeeping profession, you will no doubt incur some expenses, such as your attorney who helps set up your limited liability company, your attendance at a Professional Association of Innkeepers International (PAII) convention, your dues to national and local associations and the consultant who is helping you put it all together.  All of these expenses are considered organizational costs and they can later be amortized over a period of seven years, potentially saving you some taxes.  Open a business checking account early to make it easier to track your expenses and the amount of money you are investing in your future business.  Get out of the habit of working out of your personal checkbook now and if you are running your business out of your personal checkbook cease immediately!  You are in a bonifide profession, so act like it in all of your financial dealings.

            Why is accounting so important?  Obviously one of the most important reasons is to know how your business is doing.  Is it making money or losing money.  Right behind that is the need to prepare annual tax returns and those cannot be done with out adequate bookkeeping.  However, it goes beyond the obvious basics.  It provides you with records that your banker and/or lender will require for your financing, it will provide records for your Certified Public Accountant (CPA) to help you file tax returns and meet legal requirements, it will allow you to see where you can make changes to improve your business and its bottom line and it will allow you to prepare budgets and plan for the future based on past performance.  Ultimately how you set up your accounting system and then how you use it will involve and impact every part of your business.

            There are five key components to accounting for your business, Assets, Liabilities, Owners Equity, Income and Expenses.  There are two main reports that you will use. The first is the Balance Sheet, which has the assets, liabilities and equity, and the Income Statement (sometimes also referred to as the Profit and Loss Statement), which contains your income and expenses.  It is still possible to do your bookkeeping by hand using spreadsheets, but I would not recommend it, when there are so many computer software programs that will make your life much simpler. 

            The most popular small business accounting software is QuickBooks® by Intuit.  But even within QuickBooks® there are choices including QuickBooks Simple®, QuickBooks Pro®, QuickBooks Pro for Mac®, QuickBooks Premier®, QuickBooks Enterprise® and QuickBooks Online®.  Intuit also produces TurboTax® for income tax preparations and Quicken® for home finances.  While some innkeepers use Quicken® or Quicken for Home Business®, neither really give you the depth, tools or necessary reporting to adequately run your inn.  My recommendation is any of the QuickBooks Pro® versions, which actually give you more options than you will ever use.  However, they will give you the opportunity to do payroll, budget, prepare financial statements, print checks, store vendor information and all the core functions you will need.  There are other companies that also provide accounting software on the market.  The other top five sellers are MSN Money®, Netsuite®, Peachtree Small Business®, MYOB® and Simply Accounting by Sage®.  Your cost will be in the $200 range and you will need to upgrade to the next version every three years or so, because all of these companies have figured out planned obsolescence. If you are doing payroll, there is generally additional fees for that module and/or the annually updated tax tables.

            You do not need to be trained in accounting to operate any of the small business accounting software.  QuickBooks® is excellent in its training tutorials and providing step by step screens to help you set up your business in the software.  The one thing they are not good at (or any of the software for that matter) is providing you with a good Chart of Accounts, which is the key component and backbone to the entire system.  QuickBooks® does give you an option to chose accounts for "Accommodations, including B & Bs," but it is totally inadequate.  I highly suggest you chose the option to set up your own accounts and use the PAII suggested Chart of Accounts outlined in their annual Industry Study of Finance and Operations (see boxes below). It does not include your balance sheet accounts, but gives you an excellent starting point and from there you can customize the Chart of Accounts to meet your needs.  Every inn has different types of income and expenses they wish to track, but this is where you should start.  There are other Chart of Accounts for inns out there and they are certainly acceptable, however this is the most widely used.  An additional benefit is that with a Chart of Accounts similar to PAII's you will easily be able to participate in the annual Industry Study.

The Professional Association of

Innkeepers International

Recommended Chart of Accounts
PAII classifies revenues and expenses in the categories defined below. A variety of other charts of accounts (systems of classifying revenues and expenses) are in use in the industry as well.
It is helpful for operators as well as bankers and other professionals serving the industry to have a common accounting system used across the inn-industry. This permits comparison of individual inns to industry averages and makes communicating about inn businesses and discussing operations simpler and more accurate.
In general, the Chart of Accounts is designed to group expenses into categories that an innkeeper might want to track and control (like housekeeping or guest supplies). The additional accounts in the Country Inn chart allow the innkeeper to evaluate the lodging operation and the restaurant separately as profit centers. In the Country Inn statement of profit and loss, restaurant revenues can be compared to restaurant expenses, lodging revenues can be compared to lodging expenses, and overhead expenses that are shared by both operations (such as maintenance or taxes) are listed together as Other Operated Expenses.

Revenue Accounts